Ashiana Housing Limited (523716) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Ashiana Housing Q3 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Gaurav Sud. Thank you, and over to you, sir.

Thanks, Aman. Welcome, everyone, and thanks for joining this Q3 FY '21 earnings call for Ashiana Housing Limited. The results and an investor update have been mailed to you, and it is also available on the stock exchange. In case anyone does not have a copy of the press release, please do write to us, and we will be happy to send it over to you. To take us through the results for this quarter and answer your questions, we have today with us Mr. Varun Gupta, Whole Time Director of the Company; and Mr. Vikash Dugar, who is the CFO. We will be starting the call with a brief overview of the company's performance for this quarter, and then we will follow it up with a Q&A session. I would like to remind you all that everything said on this call that reflects any outlook for the future, which can be construed as a forward-looking statement must be viewed in conjunction with uncertainties and risks that they face. These uncertainties and risks are included, but not limited to, what we have mentioned in the prospectus filed with SEBI and subsequent annual reports, which you will find on our website. With that said, I now turn over the call to Mr. Vikash Dugar. Over to you, Vikash.

Good afternoon, everyone. Thank you for joining us to discuss performance of the third quarter of FY '21 of Ashiana Housing. I extend a warm welcome to all of you. Area booked recorded in Q3 FY '21 was 3.57 lakhs square foot as compared to 2.29 lakhs square foot in Q2 FY '21. The bookings in this quarter were higher due to launch of Phase III of Ashiana Daksh in Jaipur and launch of Phase IV of Ashiana Shubham, Chennai. Area booked as well as area constructed has improved in this quarter as compared to the previous quarter. Area booked is lower as compared to corresponding quarter of previous year on account of Q3 FY '20 having some newly launched projects. We handed over 3.94 lakhs square foot in quarter 3 of FY '21, out of which 2.14 lakhs square foot was delivered in partnerships. The area delivered in Q3 FY '21 was higher at 1.80 lakhs square foot in compared to area delivered in Q2 FY '21 at 1.06 lakhs square foot. Revenue recognized from completed projects was INR 62.42 crores, vis-à-vis INR 36.22 crores in Q2 FY '21. Total comprehensive income was positive at INR 13.26 crore vis-à-vis negative INR 1.74 crore in the previous quarter. Pretax operating cash flows were positive at INR 63.9 crore, increasing significantly from positive INR 30.04 crores in the previous quarter due to increase in collections. Equivalent area constructed was at 3.54 lakhs square foot versus 3.01 lakh square foot in the previous quarter and was 2.39 lakh square foot in the Q3 FY '20. The quarter also witnessed healthy cash flow owing to higher collections aided by new sales launched in Ashiana Shubham, Chennai and Ashiana Daksh, Jaipur. On this note, I would like to conclude my remarks. We'll now be happy to discuss any questions or suggestions that you may have.

[Operator Instructions] The first question is from the line of Himanshu Upadhyay from PGIM.

The results are showing better or coming better. I think your hard work is leading results. I have a few questions. What we are seeing is more sales contribution happening from projects launched 1 or 2 years back, and nearly 9 projects are going to get completed in next 8 to 9 quarters. Should we expect that the cash flows will be much higher, especially operating in next 2 years in comparison to what they were in last 3 years? So cash positions will become much better? So that was my first question.

Thank you, Himanshu. Yes, cash positions are already improving. As you can see, we have had a very good quarter in operating cash flows. And I think the basic reason was the sales in '19, '20 were financially were very good, and that started reflecting into cash flows this year. I expect our cash position to be continued to improve in terms of -- or sustained. I think this quarter was -- this is higher on the pretax operating cash flow side than normal, but let's say, for the year, what we have gotten 'til now, 9 months, hopefully, these kind of numbers will continue on the operating cash flow side on a year-on-year basis right now going forward.

So why -- this question was because some of the contribution from projects like Anmol or Tarang, which are there, which are contributing still, which are -- which were launched 2 years or more back. So there, we would be getting more than 50%, 60% of sales value immediately, within 1 month, because of 2 years have passed and construction has been -- would have reached more than 50% to 60%. So that's why the question was there.

As of now collection seems to be good. Like if I -- what we represent also is something in the amount of cash flow that are yet to be received from under construction projects, which I think is north of INR 300 crores at this point of time just for Ashiana Housing, INR 330 crores partnership with another nearly INR 40 crores. So we have a significant amount of cash flows already locked in from sales done up 'til December. So as and when we sell more units, within these ongoing projects, a lot of that was straight flow to net cash flows because the current cash flows are, in my opinion, sufficient to cover the construction cost to be incurred in these projects already. So therefore, I'm coming back -- coming to you that I expect cash flows to remain strong going forward.

Okay. And we have said in last many quarters that NCR, Chennai and Pune are the focused areas for us. And we have said that we are working on business development here. Even in pre-COVID, hence, when we went down, I think we had 4 deals which we were working on. But we have not seen much. And what we are hearing from competitors is that in terms of deal has become better even in JD with landowners, okay. What is concerning us or hindering us from doing new deals in these markets? And what are the challenges you are seeing? Can you elaborate on that?

Yes. We are just temperamentally a little more conservative than others. Deal terms have become better as what you've heard is correct. Though over the last 2 months, I would say land markets have started hardening again in some markets, and there is liquidity flowing into the land market, again, in different markets. So it depends where you are. That said, we have -- we are in the midst of closing. We're just taking a little longer to close. A couple of transactions that have approved. In Pune, particularly for me -- for us, the Ashiana Malhar project, which is there in the future projects is the first thing that we wanted to take through fully. It was an MoU done project where zone conversions and all were received in August and it fully locked in the development agreement and closed the transaction fully. And right now, building plans and environmental clearance are under approval and progressing. On the building plan front, we have adequate progress. And environmental clearance, we'll get more knowledge in the next couple of months. We are hoping that we should launch the Pune project sooner than later as the first step. And in NCR also, there are 2 very active transactions at this moment of time, and we are hoping that maybe by the next call, we'll have closures on those and making those move forward. So we are active. We are a little slower than others because we tend to be a little bit conservative on our deal terms as compared to.

Yes. And one last question. In the last call, I think somebody asked and we stated that we expect the land prices to remain low, and it will take time, the prices to recover, okay, because the balance sheets of many developers are not so strong. And that was a scenario which we painted in the last quarter. So is it a negative surprise to us like the, what you are saying is the land issues are starting to hardening up?

It is a negative surprise that prices have started hardening up in a few places. It wasn't something that I expected.

The next question is from the line of Rohith Potti from Marshmallow Capital.

It was quite interesting to see the realization which we got this quarter, probably the highest ever in our history. And it's more than 10% up, I believe, from an average of INR 3,200. So what rouses the increase?

Rohith, a large part of this is being driven by increased contribution of Ashiana Anmol in this quarter as compared to other quarters. Ashiana Anmol is priced closer to INR 4,800 a square foot, INR 4,900 a square foot. So when it contributes close to 20%, 25% of -- close to 10%, 15% of sales in a quarter, even that INR 1,600, INR 1,700 can have a INR 200 delta on the entire volumes. We haven't seen price increases yet in projects. So there is no increased pricing, but that said, we are seeing an upward trajectory. Sorry, the other contribution of higher prices was also from our Chennai project. Ashiana Shubham in Chennai is also now in INR 4,200 kind of per square foot pricing. And that has also had a good contribution this quarter again. So both of those effectively ended up increasing the average realization. In Chennai, we have been able to increase prices, actually. This is not -- that's been stable. But now the sense that we are getting is that we should have upward price movements going forward. And that's the first sign we are getting. And we are albeit very little and tiny increments, but we are increasing prices.

That's very interesting. So you're saying that as early as probably in the next couple of quarters, we might start increasing prices across other geographies and projects as well?

Yes, we should. I think we should, okay. We just said in the last question, somebody asked did I get a negative surprise, and I was surprised negatively as in some of my forecasts. So that said, my view is that we should be increasing.

Okay. That's helpful. The next question I have is -- I mean, so I have come for your Analyst Meet a couple of times, and one of the times, you probably had said that 1 mistake we made in the last time, last up cycle was that we went a little aggressive on land purchase, particularly in Bhiwadi. Now just curious to know the management thought process on the current land inventory we have. To me, it seems like we are a little too conservative now because I think half our future projects is in Bhiwadi. And given the aspiration and ambition that we have to grow, it doesn't seem like we have enough property after, let's say, next 2, 3 years. So I would like to know more of your thoughts on this topic, please.

So agreed, we -- as I said, we are looking to grow a few locations, we need lands. So outside of Bhiwadi, in every market we are in, we are actively scouting for transactions. That said, the mistake that we made in Bhiwadi, we don't want to repeat in any other location where we get saddled with too much capital -- excess capital deployment in any location and struggle with that. Maybe that's -- and that keeps us conservative. But that said, we -- in terms of aggression on land transactions that we have in the organization today, I don't think we have had that in the last maybe 6, 7 years at all. Probably this kind of aggression in terms of scouting transactions was back in 2012 and 2013.

That's helpful to know. And last on -- you mentioned that we have something in advanced stages in -- we have a couple of deals in advanced stages in NCR to the previous participant. So just curious to know the progress on, let's say, Kolkata and even in Chennai, what's happening. Because, I mean, as you mentioned, we've increased prices. Are there any further land parcels that we are expecting to land in Chennai as well?

Okay. So in Chennai and Pune, we are in active conversations. Pune is in very advanced stages of conversations, by advanced stages mean, we have a term sheet signed. We are doing diligence on the title and discussing on documents. But we have a hit ratio of 1 in third every -- for every term sheet signed -- every 3 term sheets signed, only 1 goes through, okay? But we are in that stage in Pune. In Chennai, we are in advanced discussions. And basically NCR are also on this term sheet kind of stage transactions or diligence done and progressing to closing transactions. Chennai, we are actively discussing a lot of transactions. Calcutta, we have no outlook to do any more new transactions as of now.

Yes. So Calcutta, what about the current existing Shriram deal that we have?

Again, we don't have any visibility there, but it's a place where we get visibility, we go back. We get visibility, we go back. So it's been a frustrating place to do work.

Understood. Understood. So we'll just focus -- continue focusing on NCR, Pune, Chennai for now. I believe then.

Correct. Jaipur.

And Jaipur.

Jaipur, NCR, Pune, Chennai. Yes. That's right.

[Operator Instructions] The next question is from the line of V.P. Rajesh from Banyan Capital.

Am I audible?

Yes, you are.

Yes. So my first question, congrats on the transactions in Anmol. So if you can just elaborate what works, so that it suddenly started moving? And do you foresee at this current speed, we will clear the inventory in the, let's say, next 3, 4 quarters?

Yes, Ashiana Anmol has -- so we changed somewhat of, say, the market, I think in NCR has changed on the -- on a positive note. I think overall, there is -- the market has become a lot more buoyant than before. But within that market, also, I think we changed the way we work. And I think we got a third-party strategic partner in the form of Anarock, and we also, with them, were able to open up the channel partner, broker community in Gurgaon that we were trying to experiment with to work in that market. And I think that's become successful the way we have operated there and been able to sort of control the sales process at the same time to ensure that no mis-selling happens. That was, I think, what he was -- that's what it seems like we're working to. I would expect that we should be able to clear out Ashiana Anmol's ready inventory in -- by the first quarter of next year to a very large extent. We might be left with a few units here or there in it. I think that's what will probably remain with the pace that's going. January has gone very well in Anmol.

Okay. That's excellent. Then the question on the Town, what are we doing on that because that is still very slow moving? So it may take up to 2 years at current pace.

There we continue to rack our brains, like we racked our brains in Anmol 'til we tried different things and something works. Here also, we are in the process of trying different things and hoping something will work. I think a lot of this is trial and error unfortunately. So we are hoping something will work in Ashiana Town.

Okay. And then on the land acquisition, I'm just wondering if you are seeing the pricing hardening now. And since real estate is a long cycle, doesn't it make sense to get a little more aggressive? And I know you said the activity levels have gone up, but I'm just trying to understand beyond just, let's say, 1 or 2 deals because your hit ratio you said it is 1:3. So given that we have only 3 term sheets filed in NCR, chances are there you will only get 1. So why not be a little bit more aggressive out there? Especially, there your IFC partnership where you have already wonders.

See, we are looking at -- we are quoting more aggressively. We are looking at transactions more aggressively. Unfortunately, I have nothing to show for it right now. So 'til I don't have anything to show for it in the call, it's just really talk. So hopefully, we'll have something to show for it in the next call that we would have. But we are aggressively looking at it.

Okay. That's encouraging. And then my last question is, what is sort of the general guidance you have for the next year in terms of max square footage? Any thoughts, any preliminary reflections on that front?

No, there is -- it will be hard to guide on that because we are doing our annual planning, and we haven't gotten around to that. And it's difficult to give a guidance on that still because a little bit of it will depend now getting approvals in a couple of projects and getting them out the door. So maybe again, next call, we'll have a better sense. My -- 1 thing that is there, though, clearly, cash flows are improving. And so if I don't have a next year guidance, but I have a clear view that we will be more aggressive on getting more projects, signing up more deals and looking at sales, because one of the big things that has changed in this quarter as compared to earlier, and which is enabling us to be more aggressive is that our view on cash flows and visibility on cash flows is far higher today than we have ever had before. And that is making a very large difference.

I see. And lastly, given the success that you had in changing your sales model at Anmol, are you planning to do that as a general principle or you are still going to be internal sales for the spots?

Yes, see again, I think we have had to do that in Gurgaon. And personally, to me, it's a very expensive model. I'd much rather sell through word of mouth, which we already do. And in Gurgaon, also hopefully, once we build scale, then hopefully, then more and more sales will come through our existing customers. I'm not talking about selling online, advertising or hoardings. Those are also very expensive. Channel partners are also expensive. So one of the views is that in markets where we need them, and there isn't much choice, we factor the cost in our financial models and go ahead and work with that. But where we can sell with a much smaller, lower cost of sales like in Jaipur or Jamshedpur, I don't see any reason to get them on board at this point in time. I think that's a primary concern there on costs. And the second is the amount of effort and exercise we have to do to build a network, it does consume energy, and then making sure that sales processes are with Ashiana's brand and ethos and standards that mis-selling does not happen and there is customer centricity and less -- it's customer-centric and not transaction-centric, if I say, our sales process. I think I'm not someone of the view that we will repeat this across the board unless or until we have a handle on those both. If we are able to keep our costs in check and mis-selling in check without too much effort, then it's something we can roll out to other places. But the costs that are involved in Gurgaon, are I don't think sustainable as a business model for us for other locations as well.

Okay. And lastly, any update on Noida? Because I think you had mentioned that you are consuming that area as well. So any land deals or any thoughts on that?

We have a term sheet in Noida for a senior -- not Noida, but the greater Noida area for a Senior Living project. We are hoping that, that term sheet consummates into a transaction and we're able to do to that.

[Operator Instructions] Next question is a follow-up question from the line of Himanshu Upadhyay from PGIM.

My question was on the Pune market. We have a project which we are going to launch or we are preparing to launch. The government has reduced some of the duties -- or not duties, but taxes and conversion charges and all those things. Would we benefit and how much benefit in terms of cost of the overall project do you think you will be getting because of those benefits?

I don't think the benefit will really accrue for the kind of projects that we are looking to do. I think the benefit is more in civil centric projects where EBITDA consumption is very high and where you pay for a lot of premiums to do that. We are not in a city center environment. So I don't think we will get any benefit that is material to the project. If anything comes, it will be insignificant. That said, what has happened in Maharashtra in terms of the stamp duty, the reduction in terms of all this, that the government has done, I think the biggest benefit would be that the sentiment of the market towards real estate has become very positive and that should enable sales.

Okay. And for us, the launch would be next calendar year or do you think we can launch in this financial year, means FY '22?

We should launch in FY '20 (sic) [ FY '22 ].

Okay. And we had an agreement with IFC. So what is the thing, means when we are seeing these increased land dealings or we are thinking about more projects. Is the IFC also there or?

Yes. We are still there, and we are in discussions. Hopefully, one of these projects that we'll sign up is going to be partly financed there.

And one more thing, last question, Varun. Do we need to increase the bandwidth or even the funnel, means the funnel of projects? Because the success rate here is low? Or do you think -- what can we do over a longer period to increase these newer projects? Because as the company grows, let's say, a 4 million square feet is what, let's say, we have as investors' aspirations from the company next 3 to 5 years, you should do it, you should be able. So what can -- or what will you need to do to increase the number of land transactions and the size of the company? Some of your thoughts, obviously, one question I had was, do we need to increase the funnel size of projects we are evaluating?

The sheer size of the project as to how to big they are in the project size itself? Or the number of projects we are evaluating Himanshu?

No, I am saying the number of projects we are evaluating or, let's say, land transactions, do we need to increase? Because the funnel size, the number of projects, because yes, obviously, we want to do 1 or 2 projects and…

Again, I think these conversations are coming back to because we don't have anything to report. I would request you guys to hold on a little bit and wait. A lot of this is less execution capabilities. A lot of this is also patience at our end as to when to buy and when to do a transaction. See again, the biggest -- the one thing that is fundamental to determining our returns are entry costs, okay? And if you look at not only us, most real estate companies, even if they have had very good sales reported, have had poor return on equity numbers. And I think the large part of that is driven by a very high land cost payment that is there. So a little of the reasons we are picking and choosing is not we are not evaluating number of transactions. It's also a little bit of wanting a certain return on the table for us to do a transaction. And aggression there, which we did in '12, '13, in terms of pricing, was some of them went counterproductive and hurt us over the last 4, 5 years. Ashiana Anmol is a project where we have high sales, where we might get sales price and revenues. It's very, very poor on return ratios and gross profit margins, just because we got the land pricing and the deals are wrong, and we can't do anything about it. So again, I would just like to clarify on that. That's the nature of the management team here as to what it is. And we believe that that's the right way to go. Over aggression here would be a cause of concern and not just a issue. So I would request that you hold on for a quarter or 2. We are working on transactions, but a lot of that has to do with the caution that we have on the numbers that we use as assumptions.

Okay. We'll see and wait for more time.

Yes, thanks. Thank you for that.

The next question is from the line of Darshan Shah from White Equity.

I just have 1 question. So far, we have seen much higher bookings at the time of launch in Jaipur and Jamshedpur for the last -- let's say, since last year. But we have not seen the similar thing panning out in the Ashiana Shubham, the latest phase that we have launched. So can you just please share there some reason behind this?

A couple of reasons is that Ashiana Shubham is a not a fresh project launch in general, but largely because it's a Senior Living project, so it is a very end-user driven sales and not sort of a investor-driven sales. So in Senior Living, we don't expect that kind of launch momentum in the first place itself. And with the nature of the projects, which differentiate. That said, we see Senior Living as having great return ratios now going forward because they provide better margins and better pricing overall. We've been able to figure that out in Senior Living.

Next question is a follow-up question from the line of Rohith Potti from Marshmallow Capital.

So Varun, I saw Ashiana's name linked with, I think, a Noida developer Three C Homes. So any clarification, any -- do you have anything to share on this?

So we obviously haven't -- so there was some land that was there coming through the bankruptcy courts over there. So we had not yet put in basically a bid so we can evaluate the project. We have not even put in a financial bid, we just put in -- said we're interested to evaluate the parcel with another investor. We evaluated the parcel if they find it suitable for development of the kind of development we want to do. And we are not evaluating it.

Okay. That was helpful. And the second question I have was, I mean, except for, let's say, the blip in the COVID quarter, we have generally seen very strong momentum over the last couple of years. Do you see that continuing over the next few quarters as well? I mean, we have seen good numbers being reported across the board. And do we see this interest in purchase of houses continuing going forward as well?